Russell goes cheap to private equity duo with fund history

Despite fetching a price at the lower end of the scale analysts rated the sale Russell Investments last week as good news for the London Stock Exchange (LSE), according to a Reuters report.

“BofA Merrill Lynch analysts said the proceeds were somewhat below their expectations, but the market had been fretting about the sale, and the announcement should put an end to these worries,” the Reuters article says.

The US$1.15 billion sale would also end months of uncertainty within the Russell Investments business, Alister van der Maas, the group’s NZ head, said last week with new owners “experienced hands” in the financial services industry.

Lead investor TA Associates, in particular, has a long history in the funds management arena, notably its purchase of the Thomson Advisory Group in 1990, which merged with Pacific Mutual Life Insurance Company to create what became the world’s biggest bond manager, PIMCO – now owned by Allianz. The private equity group, founded in 1968, also bought a share in hedge fund firm K2 Advisors in 2005, selling down its stake 2012 to Franklin Templeton.

Excluding Russell, TA Associates lists 19 financial services companies it has invested in over the years including: Numeric Investors, Altamira Investment Services, and Jupiter Funds Management. The group invests across a diverse range of industries.

According to its website, TA has raised more than US$18 billion of capital, typically investing “up to $500 million in any individual company”.

Junior partner in the Russell deal, Reverence Capital, has a shorter corporate history, formed in 2013 by a breakaway group of Goldman Sachs and General Atlantic executives.

According to the website, Reverence is a “private investment firm focused on the middle-market of the financial services industry”.

Reverence’s only other current investment is Cleveland-based “multi-boutique asset management firm” Victory Capital.

According to a press release: “Victory Capital provides investment advisory services to institutional clients including corporations, non-profits, public funds, Taft-Hartley and sub-advisory clients.”

Victory Capital also offers a range of retail and institutional managed fund products.

In a release announcing the sale last week, LSE said Russell Investments managed about US$266 billion globally while advising on US$2.4 trillion of assets.

“For the six months ended 30 June 2015, Russell Investments had gross income of US$757 million, operating profit of US$89 million and profit before taxes of US$43 million,” the LSE release says. “As at 30 June 2015, the business had gross assets of US$1,846 million and liabilities of $752 million.

According to a June 2015 FundSource report, Russell Investments NZ reported about $2.8 billion in funds under management, which included more than $900 million invested via the range of five PIE funds offered by Implemented Investment Solutions.

Russell NZ also has a wide range of institutional advisory clients.

Prior to the deal announced last week, Russell had been courted by a number of potential partners including global asset consultant Towers Watson, Chinese online gaming/financial services conglomerate Shanda Corp, and compatriot firm Citic.

Citic, reportedly dropped out as lead bidder last month, had been tipped to offer as much as US$1.8 billion for Russell.